Investing 11 grand as a Uni Student

Question

I am currently 18 years old and from part-time work have saved up approximately £11,000. I am soon going to University (Scotland) (no tuition or accommodation costs). I generally have poor control over my spending, if I have money I will typically spend it.

I was hoping to invest a good chunk of this money and am not sure how to do it. I was hoping to find a low maintenance method. I am not interested in making money through interest. I am also hoping for an investment method which I can regularly contribute to (but not obligated to).

Answer 1

Firstly for investment purposes the typical length of a university course (3-4 yrs) is a rather short amount of time - around 5+ years is usually the minimum time span for investing. Hence there is a considerable risk of making real-terms losses as gains on investments are often netted over a long time to reduce the impact of crashes (and other events such as brexit).

stocks and bonds investment options

Option 1 - individual company stocks This is the highest effort solution as significant research is required and is likely the higher risk option. A number of banks and other investment services will offer an online platform for this.

Option 2 - funds A number of funds exist which try to index particular stock markets or sectors. The FTSE 100 is a well known example of a share index. Some funds may also invest in bonds. A less risky fund may contain a mixture of bonds and shares.

A selection of platform can be found here along with a small amount of information on each and other investing advice.

A number of these platform will also allow regular contribution but may have some restriction on how small these can be.

You are likely to benefit more from a passive funds as the charges on active ones are higher and with your relatively low principal may not be an option.

Peer to Peer loans

perhaps not strictly an investment but lower risk and more suited to shorter time horizons (2-3+ yrs instead of 5+). These are basically loans to people or businesses Extra information and some platform suggestions here

ISA

There are a number of different kinds of ISA and you should figure out which kind of ISA is suitable for you savings goals and wrap your investment in one of these if possible. The advantage of an ISA is that no tax is payable on earnings. However if you earn less than £14000 you would not pay tax anyway. However the ISA will protect you from tax later when you might need to pay it.

There are three main ISA types - the yearly ISA limit is 20K with some types having their own limits.

• stocks and shares ISAs
• cash ISAs
• Innovative finance ISAs - for P2P
• Lifetime ISA - can only be withdrawn from to purchase a house or retire but receives a sizeable bonus (limit 4k pa) details should be usable as cash or stocks here
• Help to buy ISA - receives a significant bonus when used to purchase a first home details here

Personal pension

An option is to add this to a personal pension though a Self invested personal pension (SIPP) or some other product. There may be some tax advantages to this but at this stage other options may be more suitable.

Answer 2

Beginning your investing at an early age is a good idea but being 18 and about to enter college, it may be premature. You have no idea what your possible expenses may be during the next 5 years. In addition, in the grand scheme of working for 30-40 years after graduation, £11,000 isn't a fortune.

There are as many opinions as to when and what to invest in as the day is long and there's no one size fits all answer. You have to get an idea of how different investments perform as well as what your goals are and your risk tolerance is, before investing your hard earned money.

Be that as it may, I'm a big fan of utilizing investment grade preferred stocks for generating income (U.S.). They currently pay close to 6% and they have low risk, other than an inverse relationship to long term interest rates. You can buy individual issues or go with an ETF. If you go with individual securities, you can bump the yield up several percent with some judicious swapping if share price cooperates. More so with an interest rate cycle which we haven't seen for a decade.

If income isn't your cup of tea and you prefer growth, you can use low cost ETFs. If you have interest in specific stocks, there are many that offer no cost DRIPs (Dividend Reinvestment Plans). In either case, there is no obligation to contribute more dollars.

My best suggestion is to slow down the rush to invest. Focus on getting a sound education to prepare yourself for acquiring a good paying job/career that will provide for you for your life. Time permitting, begin the process of becoming financially literate so that you are better equipped to determine what suits your goals as well as risk tolerance. Prepare yourself for making informed decisions rather than seeking advice from anonymous strangers on the internet ;->)

Good luck!